Tax Center Global Tax Guide / Glossary / Discussion / Newsletters / About Us
Register Log In
myRecordsmyToolsmyClients
   Basics   
Core Concepts   
Benefits   
Grants   
Vesting   
Exercise   
Sales   
Valuation & Expensing   
Underwater Options   

Annotated diagram of Schedule DTax errors can be costly! Don't draw unwanted attention from the IRS. Our Tax Center explains and illustrates the tax rules for sales of company stock, W-2s, withholding, estimated taxes, AMT, and more.


Basics: Vesting

Test Your Knowledge Test your knowledge with our Basics Of Stock Grants quiz.

Want to know more? Listen to our podcasts on the basics of stock options, restricted stock, and ESPPs.



Articles (Jump to FAQs)

Stock Option Fundamentals (Part 2): Vesting And Expiration This is premium content

Marilyn Renninger
You cannot cash in your stock options immediately. The options must first be vested, and you don't own them forever.

Stock Option Terms: What You Can Expect This is premium content

Richard Friedman
UPDATES! Get a sense of what you should, and should not, expect in the terms of your stock option grant. A major survey of companies looks at trends in vesting schedules, post-termination exercise rules, and other plan features.

FAQ Table of Contents:


Basics

What is a vesting schedule?

A vesting schedule dictates when you may exercise your stock options or when the forfeiture restrictions lapse on restricted stock. Vesting is determined separately for each grant. A schedule is time-based if you must...

Why is vesting important to me?

Vesting is necessary to acquire company shares through the stock grant, and it is determined separately for each grant. Unless you complete the required service period at your company...

UPDATES! What is a typical vesting schedule? Do you have any data on vesting schedules and their design? This is premium content

Graded vesting is more common than cliff vesting. According to surveys, the most common vesting schedule for these grants is...

How are vesting schedules established? This is premium content

Vesting schedules are either established in advance by the board of directors when it approves the...

Are there different types of time-based vesting schedules? Which are most common? This is premium content

Yes. Vesting schedules provide for either "cliff" vesting or "graded" vesting...

Must all employees have the same vesting schedule? This is premium content

No, it is not required. Sometimes, a stock option plan will provide for a...

May I ask for a shorter vesting schedule? This is premium content

Yes, unless the vesting schedule is mandated by the...

Do technology companies use special vesting schedules? This is premium content

Yes. Technology companies, particularly pre-IPO companies, often have...

How much are my vested options worth? This is premium content

If you are vested in your stock options and they are currently exercisable...

If I remain with the company for the duration of the vesting schedule, is there any way I can lose the benefit of my option?

You could mistakenly let the options expire without exercising them. You do not have your vested options for life...

Return to top of FAQs Return to top of page

Rules

Does the law mandate any minimum vesting schedule? This is premium content

Federal law does not mandate a minimum period within which your options must vest. For private companies, the laws of certain states...

What service counts toward vesting? This is premium content

Unlike in some benefit plans, service for time-vested option and restricted stock grants is rarely...

Does service with a previous employer ever count toward vesting? This is premium content

Not usually. An exception would occur if your...

How does the vesting of stock options for consultants and contractors differ from the vesting of grants to employees? This is premium content

Almost all grants to W-2 employees base vesting on...

Once my in-the-money options vest, are they mine forever? This is premium content

No. You could lose them in any of the following ways...

NEW! What is a post-vest holding period? This is premium content

A post-vest holding period is a specified length of time after you receive shares from an equity grant during which the company requires you to...

Does vesting continue while I am on a leave of absence or a sabbatical? This is premium content

This depends on the terms of your company's plan document and your grant agreement as well as on the reason for the absence. Some plans give you vesting credit for...

How does a call to active military duty affect stock grants?

The impact is determined by your stock plan. Some plans have provisions on what happens to outstanding options upon an approved leave of absence...

Does the reason for my leave of absence or sabbatical affect vesting? This is premium content

Yes, according to the terms of your stock grant and any flexibility given by your plan administrator. Usually you...

Does maternity leave stop my vesting? This is premium content

Companies either include maternity in their short-term disability policy (and suspend vesting, regardless of the reason for the short-term leave) or...

How do unpaid vacations and shutdowns affect vesting schedules? This is premium content

Always check your stock-plan documents for any guidance on this type of situation...

What happens to vesting if I am transferred to a subsidiary? This is premium content

Typically, your service to the subsidiary continues to count...

What happens to vesting if I leave to work for a joint venture? This is premium content

If your company does not own a controlling interest in the joint venture, this could be considered a termination of employment...

Is the original vesting schedule ever accelerated by reaching performance milestones or special goals? This is premium content

Some companies accelerate the vesting schedule of restricted stock or RSUs if...

Can I negotiate faster vesting later while I am working for the company?

If a company makes a grant with a specific vesting schedule and the schedule is later shortened from its original terms, the accountants will usually...

Return to top of FAQs Return to top of page